Published in The Reporting Times, the Center for Corporate Reporting, Zurich, Switzerland, May 2019
Our creation story begins in an unlikely place: Vermillion, South Dakota. For those who have traversed the American midwest, South Dakota conjures up images of surreal striated sandstone and clay ravines as dramatic as any illustration of the creation of earth in the Bible. Home of the Badlands and Mt Rushmore, South Dakota’s Interstate 90 is the ultimate road trippers paradise – long, straight, and mesmerizing. Last summer, I drove through South Dakota on a pilgrimage of sorts to pay my respects to Pastor Steve at Grace Baptist Church. This is the anchor church of the Siouxland Association of Southern Baptists … aka SASB. The original SASB.
You see, before there was SASB the Standards Board – on a mission to ensure all investors could access material sustainability information – there was SASB, six Southern Baptist churches on a mission from God, serving those in need. In 2011, in the throes of getting SASB off the ground, I reached out to the Siouxland Association of Southern Baptists to see if I could have the URL, sasb.org, for our website, since they could use, perhaps, sasb.god.
I still remember my earnest conversation with Pastor Steve, who managed sasb.org for the association at the time – it was my first real SASB pitch (of probably 10,000 or so that I would do over the next 7 years as its founder and CEO). But instead of pitching for dollars, which was usually the case, I was pitching for identity. To me, sasb.org represented the ultimate legitimacy and instant name recognition. The parallel construction to fasb.org (the Financial Accounting Standards Board) was more than a rhyme, it captured our mission like no other name could. I wanted SASB to develop standards that would enable sustainability fundamentals to be available right alongside financial fundamentals, such that investors could compare performance on critical social and environmental issues, and capital could be directed to the most sustainable outcomes.
I couldn’t offer Pastor Steve much money for his URL – or even technical assistance (SASB was little more than a PowerPoint deck at the time). So, I appealed to his humanity, and inquired about his own mission. Interestingly, Grace Baptist Church’s mission is “so that all may know, and all may grow.” For me, this suggested parallels to the ideas of transparency and sustainable development. I talked with him about our mission – what the new SASB would do in the world if given a chance. I told him about research I’d recently done with colleagues at Harvard University, which found a lot of reporting on sustainability issues, but little focus on improving performance, which is what our earth really needed. I explained how standards would help companies better align their financial interests with the interests of society, meaning that, in our humble way, SASB the standards setter would also be making the world a better place – just like his church. After some reflection, he agreed to transfer the URL, and sasb.org was born again – this time, as infrastructure to help capital markets benefit not just companies and investors, but society and our planet.
Fast forward to 2019, and by all accounts ESG (environmental, social, and governance) investing has gone mainstream – adopted at least in principle by virtually all the major asset owners and managers. Where sustainable investing was marginalized in 2011, BlackRock’s Larry Fink now writes letters to companies extolling the virtues of sustainability. Where standards were then written off as logistically impossible, SASB developed a sector-based approach that allowed for efficient development of standards for 77 industries – in just under 7 years, with a robust evidence-based process, defying all expectations. Where the materiality of sustainability was considered dubious, we now understand that certain ESG factors are material in certain industries, thanks to the paradigmatic work of Harvard researchers. Even the CFA Institute has emphasized “the duty of CFA charterholders to factor in all material information, including material ESG factors into investment analysis, unless contrary to client wishes,” noting that such consideration is consistent with an investment manager’s fiduciary duty.
So, is our work finished? Is it time for a day (or year!) of rest? As in the book of Genesis, if we survey all that we have done, would we say that it is good? Arguably, SASB has accomplished a great deal with its industry-based standards firmly establishing the connections between sustainability and finance via materiality. There are some who believe the standards themselves are the endgame. But going back to my first conversation with Pastor Steve, the vision was always to move companies from transparency to performance. From an exercise in reporting to managing material issues. From counting companies who “adopt” to accounting for their contributions to the critical issues of our time. Because, unfortunately, the one thing that hasn’t improved since 2011 is performance on key issues. In fact, climate risk and economic inequality are now viewed as systematic risks to an investor’s portfolio – which means they can’t diversify away from the risk and instead must care about the outcomes. The only way to mitigate systematic risks is to improve performance.
And so, our work is just beginning. The challenge for all of us is to become fluent in the language of sustainability performance – to speak not of early adopters, but of outperformers. To identify those companies not only managing risks but driving impact. When every investor is able to assess sustainability and financial fundamentals side-by-side, cite industry benchmarks and spot outliers, and invest in a way that mitigates specific and systematic ESG risks, we will be able to survey all that we’ve done, and call it good.
It’s my hope that on my next road trip through South Dakota, I can tell Pastor Steve we’re getting closer to achieving our mission, that we’re improving performance on the things that truly matter, and that his gift of sasb.org was not in vain.
